The Politicisation of the ESG Agenda
ESG is simply about doing good business, but it's growing association with "woke politics" has turned it into a political football the world over.
The ESG (Environmental, Social, and Governance) agenda has become increasingly politicized in recent years, as issues related to sustainability, social justice, and corporate responsibility have come to the forefront of public discourse. This politicization of ESG can be traced back to a number of factors, including growing public awareness of environmental and social challenges, the rise of socially responsible investing, and the increasing influence of civil society organizations and advocacy groups, and the association of ESG to a particular political stance. Politicians have realized that ESG can be a platform from which to mobilize certain voters, many of whom see their concern for the issues that the ESG agenda seeks to address as reason enough to re-engage with the political process.
One of the main drivers of the politicization of ESG has been the growing public awareness of environmental and social issues, such as climate change, income inequality, and human rights abuses. This increased public attention has put pressure on businesses and governments to take action, and has led to the development of new ESG metrics and standards to assess and benchmark corporate performance. These ESG related issues are also becoming key issues for the electorate, even here at home on the African continent.
Another factor contributing to the politicization of ESG is the rise of socially responsible investing, which seeks to align financial investments with values and social or environmental goals. This trend has been driven by investors who are concerned about the long-term sustainability of their investments and the impact that their investments may have on society and the environment. This is, the “woke money”. The fact that some vocal corporate proponents of ESG also voice progressive, political stances has made ESG seem more like a component of “woke politics” than it is about just doing good business.
In addition, civil society organizations and advocacy groups have also played an important role in the politicization of ESG. These groups have used their collective voice to raise awareness about ESG issues and to hold corporations and governments accountable for their actions. They have also been instrumental in promoting the adoption of new ESG metrics and standards, as well as in advocating for new policies and regulations that promote sustainable and responsible corporate behavior. What civil society organizations have learned is that if you control where the money goes and how it is deployed, you can change the world.
Finally, the ESG agenda has also been influenced by political and policy debates, as governments around the world have debated and implemented new regulations and policies aimed at promoting sustainability and social responsibility. This has led to increased public and political interest in ESG issues, and has further fueled the politicization of ESG.
I am not convinced that the politicization of the ESG agenda, in the way that it is playing out today, is a good thing. While this phenomenon has led to rapid changes in the financial markets and in public policy, changes that are in my view for the better, the politicization of ESG has opened the agenda up to attack. Attacks I do not believe are rooted in the usefulness of the ESG framework, but as a response to the broader political stance it is associated with. Many have argued, for instance, that the ESG framework distracts investors and corporate management from maximizing long-term profitability. Channeling their inner Milton Friedman, right - the business of business is business. However, it’s now trite that the insights from considering ESG issues in investment analysis leads to more prudent investments and that don’t come at the expense of long-term returns.
“Over $500 billion flowed into ESG-integrated funds in 2021, contributing to a 55% growth in assets under management in ESG-integrated products. We expect growth in ESG investing to continue through 2022, and well beyond.” - J.P Morgan Asset Management (ESG Outlook 2022).
For us on the African continent, the stakes are even higher. We need to invest for our development, raise millions out of poverty, improve productivity, and access to critical economic and social infrastructure. While Africa could be the frontier for ESG investing, we fear that it may be “colonialism 2.0”. This is more about the politics of ESG and where they come from, than it is about its usefulness in helping us build for the future. We could be significant beneficiaries of the $35 trillion in woke money under management.
